ANALYSIS: NGSE Index Slides Again, Amidst Hope of Rebound On Maturing Bills, Q3 Earnings

Market Update for October 8

By Investdata Analysts

NSE index rise, as window-dressing continues ahead of earnings season

Thursday’s trading on the Nigerian Stock Exchange (NSE) was mixed and volatile, extending its negative outing for the second consecutive session, amid continued profit booking on a reduced momentum. This was as investors took advantage of the pullback to reposition for the Q3 earnings reporting season, while keeping an eye on the ongoing final quarter’s seasonality that comes with year-end trading pattern.

Investors and traders remain hopeful that the additional funds entering the stock market and the expected Q3 numbers would continue to propel the market upward. The highlights of sectoral performance and attractiveness regarding the upside potentials of the market, since sector rotation has continued ahead of the quarterly earnings season.

The telecoms and banking sectors have remained the most attractive over the past 20 days, despite being on a strong recovery off the September highs. The Oil/Gas, Consumer goods and others sectors have remained weak, just as volatility is almost twice as high as in the last five years,  situation that is likely to continue with funds flowing into the equity market.

The presentation of the N13.08tr 2021 Appropriation Bill by President Muhammadu Buhar before a joint session of the National assembly may likely support the economic recovery if properly implemented. We note that the huge federal budgets over the last five years have not adequately reflected on the system.

However, we not that the budget assumptions and variables this time appear realistic, if only the fiscal and monetary authorities will complement each other by making policies that will trigger productivity in the economy.

Meanwhile, Thursday’s trading started on a positive note, before reversing on profit taking in medium and high cap stocks, which pulled the benchmark index to an intraday low of 28,398.70 basis points from its high of 28,664.83bps. Thereafter, the market closed at 28,546.22bps, but on a high traded volume.

Market technicals for the session were weak and mixed with volume traded lower than the previous session’s in the midst of breadth that favoured the bulls on mixed sentiments, as revealed by Investdata’s Sentiment Report showing 55% ‘buy’ volume and 45% sell position.

Total transaction volume index stood at 1.73 points, just as the impetus behind the day’s performance remained strong, with Money Flow Index reading 90.13 points, from the previous day’s 96.17 points, an indication that funds left the marketby way of profit taking.

NGSE outlook positive, time to diversify portfolio long-term ahead of possible correction

Index and Market Caps

At the close of trading, the key performance index lost 88.13bps, closing at 28,546.83bps, after opening at 28,634.35bps, representing 0.31% drop, just as market capitalization fell by  N46.06bn, closing at N14.92tr, after opening at N14.97 trillion, which also represented a 0.31% decline in value.

The day’s downturn was due to the continued profit booking in Dangote Cement, BUA Cement, Nigerian Breweries, International Brewery, Oando, Ardova, Conoil, Deap Capital and United Capital.

This impacted negatively on the index, cutting Year-To-Date gains to 6.35%, while market capitalization YTD gain slipped to N1.89tr, or 14.871% above the year’s opening value.

Mixed Sector Indices

The performance index across the sectors were mixed as the NSE Banking and Insurance gained 2.88% and 1.29% respectively, while the Industrial, Consumer goods and Oil/Gas shed 2.72%, 1.30% and 0.53% respectively.

Market breadth for the session turned positive as advancers outnumbered decliners in the ratio of 26:17, while transactions in volume and value terms dropped by 31.64% and 48.49% respectively. Investors exchanged 569.38m shares worth N4.91bn, as against the previous 832.88m units valued at N9.54 billion, driven by trades in Eterna, Zenith Bank, Access Bank, FBNH and Fidelity Bank.

Eterna and Unilever were the best performing stocks, gaining 10% and 9.8% respectively and closing at N3.30 and N13.50 each on positive market sentiments and forces. On the flip side, Deap Capital and Mutual Benefits Assurance lost 10% and 8.7% respectively, closing at N0.27 and N0.21 respectively on market forces.

Market Outlook

We expect this volatility, buying interests and profit taking to continue, even as investors position ahead of Q3 corporate earnings season, despite the negative macroeconomic indices. This is given the further crash in money market rates, while inflation peaked at 13.22%, worsening the negative returns on many investment windows and thereby push funds to the equity space.

The mixed intraday movement is likely to persist this October in the midst of an expected profit booking, as well as the mismatch in economic policies and negative macroeconomic indices. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation, negative Q2 GDP of 6.1% and unstable economic outlook for the rest of 2020 as government and its economic managers are going front and back with mismatch polices and implementation.

Also, investors and traders are positioning amidst the changing sentiments in the hope of improved Q3 numbers and economic indices which may support the current trend.

We see investors focusing on portfolio adjustment and rebalancing by targeting companies with strong potentials to grow their Q3 earnings and dividend on the strength of their earnings capacity as the last quarter 2020 is here.

Again, the current undervalue state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation for the rest of the year and beyond.

stock performance for September
Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited

info@investdataonline.com